Much of a detailed and technical nature has been written about
the new so-called Foreign Affiliate Dumping Rules. But what, in
plain English, are these rules about? Who is affected? The purpose
of this blog is not to provide a detailed discussion of these rules
but merely to enable the non-tax advisor to recognize when the
rules might apply and so to seek the appropriate tax advice.
Simply stated, these rules target foreign corporations that
finance other foreign corporations through Canadian subsidiaries.
Advisors should therefore look for Canadian corporations with both:
(i) a foreign controlling shareholder; and, (ii) investment (debt
or equity) in a foreign affiliate.
If this description fits and no exemption is available
then the primary effect of these rules is to deem, in effect, the
amount of the investment to be a taxable dividend payable by the
Canadian subsidiary to its foreign parent. Alternatively, that
amount is applied to reduce stated capital—in tax
